Exclusion of a participant from an LLC: recommendations

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Creating your own business is something that many people aspire to, but they do not always understand what exactly they are signing up for. Many individual entrepreneurs cannot adequately assess their capabilities, so their business either barely stays afloat or quickly sinks in the face of fierce competition. Some people make more serious plans and open their own Limited Liability Company, in which they distribute shares in the enterprise among themselves. But even here, far from always everything goes smoothly, as evidenced by the fact that the exclusion of a participant from an LLC is a fairly common topic. People are asking how they can get rid of a partner who is only dragging the company down.

How to expel a board member of an LLC?

Many people think that it is incredibly difficult or even almost impossible to do this, but it is not. All you need is serious grounds, as well as knowledge of article number ten of the Federal Law "On Limited Liability Companies", that is, about LLC. It just talks about the exclusion of a participant from an LLC, about the grounds on which this can beproduced, what needs to be done for this, and so on. To study this issue in more detail, you should read this article, which will describe in detail all the recommendations regarding what exactly you need to do in order to exclude one of the participants in your Limited Liability Company.

Background

Before considering expelling a member from an LLC directly, it is necessary to look at some of the premises. The fact is that most people who gather their strength together to organize a company almost never think about the fact that something could go wrong in the future. Often these are best friends or reliable business partners. What can possibly happen? However, you will quickly realize that doing business together can make a big difference in people. And if your enterprise also becomes successful, then there can always be that person who wants to attribute the maximum share of success (and income with it) to himself. This leads to conflicts within the enterprise, which are not always possible to settle peacefully and amicably. As a result, it becomes necessary to exclude some members, but how exactly can this be done? The exclusion of a member from an LLC largely depends on what form of activity you have chosen.

Activity form

In this case, we are talking about an LLC, that is, a Limited Liability Company. But there is also a joint-stock company, that is, a joint-stock company, andit is worth mentioning to draw parallels with LLC. So, if you open a joint-stock company, then there is a majority shareholder and minority shareholders who have a significantly (or slightly) smaller percentage of the shareholding. And if the majority holder in any way violates the charter, does not go to meetings, does not participate in the activities of the enterprise, then minority holders cannot do anything about it. Likewise, they cannot do anything to each other without the consent of the majority holder. There is no way out in this case, so you should not start your first business right away with AO.

Differences between LLC and JSC

What is the difference between LLC? The fact is that such a society, specifically in the matter of exclusion of participants, has one big advantage. If a participant has ten or more percent of the shares, then he can directly influence the affairs of the company. That is, even one single member holding 10 percent of the shares can apply for the exclusion from the LLC of another member who holds more than fifty percent of the shares. Naturally, at the same time, you must have sufficient grounds, since exclusion from the membership of an LLC is far from the easiest process. That is why you need to read this article. Here you will find everything you need: examples, recommendations, useful information and so on. After reading this material, you will be much better versed in how and under what conditions exclusion from the membership of an LLC takes place.

Simplest example

So, first you need to give the simplest example of how a participant is excluded from an LLC. Limited liability companies, as you already know, do not have a specific member who makes all the major decisions, so each of the members can do it. In this example, the LLC has expired the term of the CEO, and according to the terms of the contract, the new CEO is elected by 2/3 of the votes. But that doesn't happen. Why? Several members of an LLC who collectively own 60 percent of the shares (less than 2/3) cannot elect a new general director without the participation of the last member, who has 40 percent of the shares. And he, in turn, blackmails them by not appearing at firm meetings. In this case, a lawsuit is being prepared, which is sent straight to the court. In most cases, the "blackmailer" shows up fairly quickly at the meeting and does his part, but this is not always the case. And here you need to be one hundred percent ready, because judicial practice does not speak in favor of the plaintiffs. In most cases, the claim is denied, but this is precisely due to the fact that the plaintiffs go, so to speak, with drafts drawn, without having prepared and without having studied the necessary materials in detail. To prevent you from repeating their path, this article will help you take a closer look at expelling a member from an LLC. Limited Liability Companies is an interesting topic that will help you better understand the world of modern business.

What do you need to know when filing a claim?

It's time to find out exactly what you need to prepare when you are about to file a claim. The exclusion of an LLC member is a very serious step, so do not think that the court will rule in favor of the plaintiffs right and left. To get one of the participants eliminated, you will need a large amount of evidence, and they must be very strong. If you are going to file a lawsuit, then you should know a few things. First, it is your share in the enterprise. As mentioned above, the plaintiff must have at least ten percent of the shares in the enterprise in order to be able to apply for the exclusion of other participants in the organization.

What makes a company impossible to operate?

Secondly, you need to remember that, in accordance with the law, you can apply for the exclusion of one of the participants only if he makes the company impossible or significantly complicates it by his action or inaction. For example, as described in the example above, such actions may include the absence of a participant from mandatory meetings of society members, which makes it impossible to make certain decisions that require the votes of all participants.

Reasons for guilt

Thirdly, the court will always consider the degree of guilt of the defendant, the reasons due to which the enterprise cannot function. And that means you have tocollect an impressive amount of evidence that would directly link the fact that your business began to function much worse or even ceased to operate at all, with the negative actions or inaction of the participant against whom the lawsuit is filed. Kicking off an LLC member is a tough decision, so check out a few examples of how things can play out before you file a lawsuit.

Attention to detail

Before you draw up a statement of claim to exclude a participant from an LLC, you need to independently determine the degree of his guilt. Many people rush to court without trying to figure out what their real chances are. In the example described above, the meeting was not attended by a member holding 40 percent of the shares. Naturally, without it, it is impossible to vote on the appointment of a new CEO, since 40 percent is more than one third, which can be ignored if two thirds vote unanimously. But if his share was 30 percent? The participants go to court and report that one of the members of the board interferes with the activities of the company, as he does not appear at general meetings. However, 70 percent is more than 2/3, so it makes no sense to even waste time visiting the courtroom. Naturally, the situation is completely different if a decision is made in which the participation of all members is rigidly prescribed - in this case it makes sense for you to sue, but do not forget that you may be to blame. There are a huge number of details that you need to take into account when preparing andmeetings, otherwise the defendant may be found not guilty, because, for example, you incorrectly or untimely notified him of the meeting. Do not rush to draw up a statement of claim to exclude a participant from an LLC if you do not have hard evidence. To better understand the issue, the article will give an example of situations that you may encounter if you do not prepare properly.

Example

Even if you have a specific sample decision to expel a member from an LLC, you need to think through everything to the smallest detail. In this example, one of the participants in the LLC sued the other to remove him from the board of the organization. However, the court denied his claim, although the second participant did not really appear at the general meetings, which actually hindered the firm's activities. Why? You should be aware that notice to members of general meetings must be sent in accordance with the law, that is, by registered mail, indicating the date and time of the meeting, as well as an approximate agenda. In this example, in one case the letter was not registered, and in the other it did not contain an agenda. As you can see, even such trifles can lead to the fact that the exclusion of one of your partners from the LLC membership will end in defeat for you.

What is not a reason?

Well, now that you understand that this process is much more complicated than you might initially think, you can explore the grounds for expelling a member from an LLC. But first of all, of course,highlight those points that, on the contrary, are not grounds, so that you do not have to find yourself in an unpleasant situation. For example, many LLC members attempt to expel others for violating labor laws. However, the courts in all cases take the position of the defendant, even if he actually seriously violated the Labor Code. Why? The fact is that you need to distinguish between labor and corporate activities and, accordingly, labor and corporate legislation. On the basis of violations of the Labor Code, a participant is not excluded from the LLC. Judicial practice in this case shows that the situation does not have two solutions, and the court always wins the defendant. Also, the basis for filing a lawsuit in court is not a violation of their obligations by a member of an LLC as a sole executive body. This means that the executive body is responsible for the losses incurred by the company, but this fact itself does not imply the possibility of excluding it from the LLC.

What is the basis?

Given all of the above, what is a valid basis for filing a lawsuit to exclude one of the participants in the LLC. How can you ensure that a positive decision is made to expel a participant from an LLC? A sample of judicial practice with a positive outcome is not the only one, there are many cases, and on the basis of them some conclusions can be drawn regarding what may be a valid basis for excluding one of the LLC participants. Firstly, it is the creation of certain obstacles by him through action or inaction to bring documentscompanies in the proper form in accordance with the law. Secondly, this is an illegal holding of a general meeting by a participant. Thirdly, it is the forcible seizure of the LLC's property. Finally, this is the initiation by the participant of the transaction, which actually entailed serious negative consequences for the LLC.

Conclusions

Now that you know all about expelling one of the LLC members, there are a few things you need to understand. For example, you should not invite people to an LLC in whom you are not one hundred percent sure. You need to conduct meetings of participants according to all the rules, observing all the smallest details. Naturally, you should only go to court if you have solid evidence and arguments.